TL;DR — Quick Tax Facts for 2025/26
- Tax-free threshold remains at $18,200 — earn under this, pay zero tax
- Top marginal rate of 45% kicks in at $180,001
- Medicare Levy adds 2% to most taxpayers' bills
- Progressive system means you're NOT taxed at one flat rate on all income
- A $90,000 salary pays roughly $21,517 in tax (not $40,500)
Sarah from Brisbane just got her first $95,000 job offer. She Googled "how much tax will I pay" and nearly had a heart attack when she saw the 37% bracket. She thought she'd lose $35,150 to tax.
She won't. She'll pay about $22,967.
That's the Australian tax system in action — misunderstood by nearly everyone who doesn't work in payroll.
2025/26 Australian Tax Brackets and Rates
Here's what you'll actually pay. These rates apply to the 2025/26 financial year (1 July 2025 to 30 June 2026).
| Taxable Income | Tax Rate | Tax Payable |
|---|---|---|
| $0 – $18,200 | 0% | Nil |
| $18,201 – $45,000 | 19% | 19¢ for each $1 over $18,200 |
| $45,001 – $135,000 | 32.5% | $5,092 + 32.5¢ for each $1 over $45,000 |
| $135,001 – $190,000 | 37% | $34,342 + 37¢ for each $1 over $135,000 |
| $190,001 and above | 45% | $54,232 + 45¢ for each $1 over $190,000 |
These figures don't include the Medicare Levy (covered below). Your actual take-home depends on total income, deductions, and what you claim.
How Australian Income Tax Brackets Work
This is where most people get it wrong.
Australia uses a progressive tax system. You don't pay one rate on all your income. You pay different rates on different chunks of it — like climbing stairs, not jumping to the top in one go.
“Your marginal tax rate is the rate you pay on your last dollar earned. It's not the rate you pay on everything.
Let's use Sarah's $95,000 salary as a real example:
First $18,200: $0 (tax-free threshold)
$18,201 to $45,000: $26,800 × 19% = $5,092
$45,001 to $95,000: $50,000 × 32.5% = $16,250
Total tax before Medicare: $21,342
See the difference? Sarah's marginal rate is 32.5%, but her average tax rate is only 22.5%. That's why your payslip shows less tax than you feared.
Taxable income means your gross income minus any deductions you're entitled to claim. Work-related expenses, charitable donations, investment losses — they all reduce what you're actually taxed on.
Medicare Levy and Additional Charges
The Medicare Levy is a flat 2% charged on your taxable income to help fund Australia's public health system. Most taxpayers pay it automatically through PAYG withholding.
On Sarah's $95,000 income, that's an extra $1,900. Total tax: $23,242.
There's also the Medicare Levy Surcharge — but this only hits singles earning over $97,000 (or families over $194,000) who don't have private hospital cover. It ranges from 1% to 1.5% depending on income. If you're above the threshold and don't have private health insurance, you're paying extra. Simple as that.
Low-income earners can claim a reduction or exemption from the Medicare Levy. Singles earning under $24,276 (2025/26) may pay a reduced levy or none at all. Families have higher thresholds.
Tax Bracket Calculator: What You'll Pay
Here's the formula your payroll software (or accountant) uses:
Gross Income → Minus Deductions = Taxable Income → Apply Brackets → Add Medicare Levy = Total Tax → Subtract from Gross = Net Income
Most employers withhold tax from each pay based on these brackets. If you're on salary, your payslip shows exactly how much tax you paid that fortnight. It's calculated proportionally — not just dividing your annual tax by 26.
Over-withheld during the year? You get a refund when you lodge your return. Under-withheld? You'll owe the ATO.
⚡ The Bottom Line
Australian tax brackets are progressive — you pay different rates on different slices of income, not one flat rate on everything. For 2025/26, the tax-free threshold is $18,200, and rates climb from 19% to 45%. Add 2% Medicare Levy for most earners. A $95,000 salary costs you about $23,242 in tax and Medicare — that's 24.5%, not the 32.5% marginal rate you're sitting in.
What are the Australian tax brackets for 2026?
The 2025/26 brackets are: 0% up to $18,200, 19% from $18,201–$45,000, 32.5% from $45,001–$135,000, 37% from $135,001–$190,000, and 45% above $190,001. These apply to the financial year ending 30 June 2026.
How do I calculate my income tax in Australia?
Take your taxable income, apply the progressive rates to each bracket (not your whole income), add up the tax from each slice, then add 2% Medicare Levy. Your employer does this automatically via PAYG withholding each pay period.
What is the tax-free threshold in Australia for 2025/26?
$18,200. Earn less than this and you pay zero income tax. It's automatically applied when you complete your TFN declaration with your employer — just tick "yes" to claiming the threshold.
Understanding your tax bracket means understanding your actual take-home. It's not as scary as it looks when you see the top rate.
And honestly? Most people overthink it. Your payslip does the heavy lifting.
Shawn Martinez, CPA
Senior Tax Accountant
Shawn Martinez is a Certified Public Accountant with over 12 years of experience in Australian taxation and payroll compliance. He specializes in PAYG withholding, superannuation regulations, and ATO compliance for small to medium businesses.
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